After a long career at Barron's, I joined Forbes as San Francisco bureau chief in December 2010. I've been writing about technology and investing for more than 25 years. With the Tech Trade, I've picked up where I left off when I was writing the Tech Trader Daily blog at Barrons.com. When I'm not working, you can find me riding my road bike around the Bay Area hills, managing my fantasy baseball team, rooting for my beloved Phillies and Eagles and hanging out in the Valley with my family. You can follow me on Facebook, on Twitter (@savitz), and on Google+.

Apple: Bernstein Trims Target; Says 'Growth Is Slowing'

Bernstein Research analyst Toni Sacconaghi today became the latest Street analyst to trim his price target for Apple. While he keeps his Outperform rating, Sacconaghi trimmed his target ro $750, from $800. He also trimmed his FY 2013 EPS forecast to $49.41 a share, from $50.57.

“Amid tremendous uncertainty in and questions about AAPL, we have spent the last several weeks revisiting our market and company model for Apple,” he writes in a research note. “In the process of doing so, we have rebuilt (and extended) our models from the bottom up, including updating adoption curves and expected market shares for the smartphone and tablet markets. For iPhone, we have also forecasted growth by price segment (high end vs. low end) by geography, as well as examined expected new subscribers from new carriers and from repeat customers.”

Here are some of his key conclusions from his review:

Apple’s growth is slowing. He sees revenue growth of 22% for FY 2013, 15% for FY ’14 and 8% for ’15.

Earnings, driven by iPhone and iPad, should grow 35% over the next two years to $60 a share.

iPhone growth should remain strong for at least the next two years. “The smartphone market is in its middle innings, with the market likely to grow from 690 million units to 1.4 billion over the next 5 years,” he writes. “We forecast that Apple will likely lose overall market share if it does not bring out a lower-price device, but the combination of market penetration plus the addition of carriers (the iPhone is only available at 240 carriers globally, out of an estimated total of over 900) translates into 40% iPhone revenue growth from 2012-2014. We believe that Apple will add 25 million new subscribers over the next 3 years from carrier additions alone.”

The tablet market is “a rocket…an absolute juggernaut.” Units are projected to more than triple over the next five years from 232 million in 2013 to 324 million in 2014.

By 2015, Apple’s core will likely be a mid-single digit growth company, assuming no additional major product additions. “That said, it will have a pristine balance sheet, and be generating a mind- boggling $49 billion in free cash flow a year after paying its current dividend, Sacconaghi writes. “More importantly, we believe that Apple’s innovation offers significant option value, which is not in our forecast. Three years ago, the iPad did not exist. Today it generates $32 billon in annual revenues, and as a standalone business would be the 11th biggest U.S. tech company. Potential “options” for Apple investors include a lower-end iPhone, a television ‘solution,’ a larger iPad or converged device and monetizing advertising, e-commerce and search from its iOS platform (and credit card database) of 435 million users.

A lower price iPhone make sense. “One key question among investors is whether the company might choose to offer a lower priced (i.e. < $300 going forward) iPhone in the future – something we have espoused for years,” he writes “We believe that doing so is important, as it opens up a significant, new incremental segment of the market. Our analysis suggests that a lower priced iPhone might optimistically add only 5% – 10% in incremental EPS, due to its lower price and expected lower margins and the potential for cannibalization, but that it is strategically important in being able to attract first time smartphone buyers to the iOS platform.”

On the stock, Sacconaghi’s comments are more cautious than his rating would suggest. “In the near term, we suspect that Apple’s stock could continue to be range-bound, given worries about the company’s ability to eclipse first-quarter and full-year FY13 estimates and given questions about the trajectory of gross margin improvement,” he writes. “For longer-term investors, we believe that Apple offers a compelling combination of attractive growth, reasonable price and significant future option value.”

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.